The newly announced budget has once again disregarded the appeals of the wine industry, continuing the government's decade-long trend of implementing above-inflation increases. It appears that this decision has become a routine, almost automatic task, seemingly performed shortly before the budget deadline. However, there is a small consolation in the fact that the increase is limited to 6.75%, or as the government frames it, a 2% nominal rise, if you squint at it in the right light. Although final adoption of the new budget is proving tricky for the GNU, the main sticking point is around proposed VAT increases and dollars to doughnuts the 6.75% increase will sail through into the final adopted document without issue.
Adding to the industry's concerns is the looming threat of the proposed three-tier progressive excise duty rate. While it did not make it into this budget and remains under consultation, its potential implementation hangs like our ownsword of Damocles over the winesector. This proposal seems ill-suited for a natural product with inherently fluctuating alcohol levels, suggesting a lack of understanding,by its architects,of the wine industry. It gives the impression that the idea was inspired by a theoretical sliding-scale tax model from an economics textbook, rather than being grounded in the practical realities of the industry.
Now that the decision to adopt sliding-scale tax models has gained traction and seems to be the new shiny toy. This despite years of concerns raised about the administrative burden such tiered systems would place on SARS and the loopholes they might create, there are far more effective criteria that could be considered rather than alcohol level.
For example, the production volume-based model implemented for breweries in the United States offers valuable insights. Introduced in 2018 [Craft Beverage Modernization and Tax Reform Act (CBMTRA)], this model employs a sliding scale that benefits smaller producers based on production volumes. This has resulted in a net increase in excise revenue on beer, by encouraging the entry of small-scale producers into the industry. The model has allowed these businesses to grow and contribute more significantly to tax revenues as they grow their production.
This system proved effective largely because in the American beer sector, as in the South African wine industry, the market is dominated by a few large producers. As a result, the financial impact on government revenue was minimal, with the majority of the industry still taxed at the maximum rate as that production stems from the large industry-leading producers. This approach seems like an obvious solution for a country, like ours, grappling with record-high unemployment and led by a government that frequently emphasizes its commitment to fostering entrepreneurship and supporting SMMEs (small, medium, and micro enterprises). It is also easily employable as we already have a robust administrative structure that monitors production through SAWIS.
South Africa has the highest rate of fetal alcohol syndrome (FAS) births globally, with over 111 cases per 100,000 births. Notably, only about 32% of the adult population consumes alcohol. When assessing total alcohol consumption per capita, the figure stands at a modest 9.3 liters of pure alcohol per person annually (for persons of drinking age). However, when considering that only 32% of the eligible population drinks, this figure escalates dramatically to 28.9 liters of pure alcohol per drinker annually.
This reflects a drinking culture structured in such a way that significant societal harm is caused despite relatively low overall alcohol consumption. For the wine industry, this presents a double challenge. The local wine-drinking base is small and insufficient to sustain the industry. Yet, within this limited base, there exists a subset of heavy binge drinkers who cause disproportionate levels of harm when compared to global norms.
Increasing taxes is unlikely to resolve this issue. Where there is a demand for alcohol, alternative means of obtaining it will emerge. This is already evident in the growth of the illicit trade market, whose infrastructure was well-established during the COVID-19 pandemic. Higher taxes will only erode the competitiveness of the wine industry on a global scale and hinder exports, an integral component of the industry's sustainability strategy.
As an industry, we often rely on graphs and data to highlight our contributions to GDP and job creation across the value chain. However, we are addressing an emotional issue with numbers, a mismatch that fails to resonate. Politics is driven by sentiment, and when policymakers witness the societal harm caused by alcohol, the wine industry becomes an easy target. No amount of good deeds can fully erase this perception.
The wine industry in South Africa did not escape the shadow of oppressive laws of the past. These laws were deliberately designed to exclude a significant portion of the population from participating in or embracing wine as part of their culture. For many, wine became "the drink of the other," leaving large segments of society disconnected from the industry. This historical alienation has made it challenging to cultivate local consumption and has fostered a sense of ambivalenceboth among the general public and policymakerstoward the struggles faced by the wine sector. Simply put, they do not see themselves as stakeholders in the industry's future.
This legacy of exclusion and exploitation continues to shape perceptions of the wine industry and highlights the need for genuine efforts to transform its image, foster inclusivity, and build stronger connections with all South Africans.
What policymakers want to see is tangible sacrifice from the industry – a proverbial "eye for an eye." This will mean expanding initiatives to combat illicit trade effectively, proactive measures must be taken, including punitive actions to publicly identify and hold accountable those within the industry who engage in such activities. Industry self-regulation needs to be significantly strengthened, as turning a blind eye to the illicit dealings of peers is no longer acceptable. Such unsanctioned behavior has far-reaching negative impacts, extending well beyond the immediate boundaries of an individual farm, as demonstrated in the past.
A unified and coordinated industry-wide effort is required to transform South Africa's drinking culture. This approach could, in turn, create greater social pressure on heavy drinkers, encouraging them to adopt more sustainable habits. It can no longer remain a wine-specific or beer-specific initiative. Instead, it must become a collaborative effort driven by the entire alcohol industry.
Policymakers are unlikely to be satisfied until they witness visible acts of accountability and reform what might be seen as a form of penance for the industry's perceived role in societal harm. Yet, even with these efforts, the wine industry will likely remain an easy target. Such is the duality of our sector: one that has the power to create and contribute, but also to harm and disrupt.
It is time for this industry to become a lot more bullish. We must chart a unified vision for the future, even when working alongside stakeholders who may not share our perspective. It is no longer enough to merely participate in policies like the new and extensive Agriculture and Agro-processing Master Plan. We must lead these initiatives, because the truth is, we possess unparalleled expertise in integrated value chain management and agro-processing value addition far exceeding that of many other agricultural sectors.
Let us not shy away from the challenges ahead. Yes, there may be bloody noses and black eyes along the way, but these are the marks of progress, the scars of a battle worth fighting.